Advance-Decline, or measurement of the number of issues trading above their previous closing prices less the number trading below their previous closing prices over a particular period. As a technical measure of market breadth, the steepness of the A-D line indicates whether a strong bull or bear market is under way.

AAA

Is American Accounting Association, Association of Accounting Administrators.

AAA-CPA

American Association of Attorney-Certified Public Accountants.

AACSB

American Assembly of Collegiate Schools of Business

AAFI

Associated Accounting Firms International

AAHCPA

American Association of Hispanic CPAs.

AAII

See: American Association of Individual Investors

AAT

In Great Britain, is Association of Accounting Technicians.

ABA

(Accredited Business Accountant or Accredited Business Advisor), in the US, is a national credential conferred by Accreditation Council for Accountancy and Taxation to professionals who specialize in supporting the financial needs of individuals and small to medium sized businesses. ABA is the only nationally recognized alternative to the CPA. Most accredited individuals do not perform audits. Generally, they are small business owners themselves. In addition to general accounting work, CPAs are also heavily schooled in performing audits; however, only a small fraction of America's businesses require an audit. In general, a CPA has majored in accounting, passed the CPA examination and is licensed to perform audits. An ABA has majored in accounting, passed the ABA comprehensive examination and in most states is not licensed to perform audits.

Abandonment

Controlling party giving up rights to property voluntarily.

Abandonment Option

The option of terminating an investment earlier than originally planned.

ABC Agreement

A contract between an employee and a brokerage firm outlining the rights of the firm purchasing an NYSE membership for that employee.

Ability To Pay

Refers to the borrower's ability to make interest and principal payments on debts. See: Fixed charge coverage ratio.In context of municipal bonds, refers to the issuer's present and future ability to create sufficient tax revenue to fulfill its contractual obligations, accounting for municipal income and property values.In context of taxation, notion that tax rates should be determined according to income or wealth.

Abnormal Returns

The component of the return that is not due to systematic influences (market-wide influences). In other words, abnormal returns are above those predicted by the market movement alone. Related: excess returns.

Rule in bankruptcy proceedings requiring senior creditors to be paid in full before junior creditors receive any payment.

Absorbed

Used in context of general equities. Securities are "absorbed" as long as there are corresponding orders to buy and sell. The market has reached the absorption point when further assimilation is impossible without an adjustment in price. See: Sell the book.

Abstract Space

Geographic model or representation of the real world. For example, maps and globes are abstractions of the real world or concrete space.

Abusive Tax Shelter

A limited partnership that the IRS judges to be claiming tax deductions illegally.

ACAT

See: Automated Customer Account Transfer

Accelerated Cost Recovery System (ACRS)

Schedule of depreciation rates allowed for tax purposes.

Accelerated Depreciation

Any depreciation method that produces larger deductions for depreciation in the early years of a asset's life. Accelerated cost recovery system (ACRS), which is a depreciation schedule allowed for tax purposes, is one such example.

Acceleration Clause

A contract stating that the unpaid balance becomes due and payable if specific actions transpire, such as failure to make interests payments on time.

Acceptance

Contractual agreement instigated when the drawee of a time draft "accepts" the draft by writing the word "accepted" thereon. The drawee assumes responsibility as the acceptor and for payment at maturity. See: Letter of credit and banker's acceptance.

Accommodative Monetary Policy

Federal Reserve System policy to increase the amount of money available to banks for lending. See: Monetary policy.

Account

An accounting record in which the results of transactions are accumulated; shows increases, decreases, and a balance.

A current asset representing money due for services performed or merchandise sold on credit.

Account Receivable Turnover

A measure used to determine a company's average collection period for receivables; computed by dividing net sales (or net credit sales) by average accounts receivable.

Account Reconciliation

The reviewing and adjusting of the balance in a personal checkbook to match your bank statement.

Account Statement

In the context of banking, refers to a summary of all balances. In the context of securities, a summary of all transactions and positions (long and short) between a broker/dealer and a client. See also: Option agreement.

Accountant's Opinion

A signed statement from an independent public accountant after examination of a firm's records and accounts. The opinion may be unqualified or qualified. See: Qualified opinion.

A short-term financing method in which accounts receivable are collateral for cash advances. See: Factoring.

Accounts Receivable Turnover

The ratio of net credit sales to average accounts receivable, which is a measure of how quickly customers pay their bills.

Accredited Investor

Refers to a wealthy investor (net worth $7 million or annual income >200,000) who does not count to the maximum of 35 people allowed to invest in a private limited partnership.

Accretion (of A Discount)

In portfolio accounting, a straight-line accumulation of capital gains on a discount bond in anticipation of receipt of par at maturity.

Accrual Basis

Gross income is recognized when earned.

Accrual Bond

A bond on which interest accrues but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity.

Accrual-basis Accounting

A system of accounting in which revenues and expenses are recorded as they are earned and incurred, not necessarily when cash is received or paid.

Accrued Benefits

The pension benefits earned by an employee accourding to the years of the employee's service.

Accrued Expenses

Expenses that arise through adjusting entries when accounting for unrecorded expenses.

Accrued Interest

Applies mainly to convertible securities. Interest that has accumulated between the most recent payment and the sale of a bond or other fixed-income security. At the time of sale, the buyer pays the seller the bond's price plus "accrued interest," calculated by multiplying the coupon rate by the fraction of the coupon period that has elapsed since the last payment. (If a bondholder receives $40 in coupon payments per bond semiannually and sells the bond one-quarter of the way into the coupon period, the buyer pays the seller $10 as the latter's proportion of interest earned.)

Liabilities that arise through adjusting entries when accounting for unrecorded liabilities.

Accrued Market Discount

The rise in the market value of a discount bond as it approaches maturity (when it is redeemable at par) and not because of falling market interest rates.

Accumulate

Broker/analyst recommendation that could mean slightly different things depending on the broker/analyst. In general, it means to increase the number of shares of a particular security over the near term, but not to liquidate other parts of the portfolio to buy a security that might skyrocket. A buy recommendation, but not an urgent buy.

Accumulated Benefit Obligation

An approximate measure of the liability of a pension plan in the event of a termination at the date the calculation is performed. Related: Projected benefit obligation.

Accumulated Depreciation

The total depreciation recorded on an asset since its acquisition; a contra account deducted from the original cost of an asset on the balance sheet.

Accumulated Dividend

A dividend that has reached its due date, but is not paid out. See: Cumulative preferred stock.

Accumulated Profits Tax

A tax on earnings kept in a firm to prevent the higher personal income tax rate that would obtain if profits were paid out as dividends to the owners.

Accumulation

In the context of corporate finance, refers to profits that are added to the capital base of the company rather than paid out as dividends. See: Accumulated profits tax. In the context of investments, refers to the purchase by an institutional broker of a large number of shares over a period of time in order to avoid pushing the price of that share up. In the context of mutual funds, refers to the regular investing of a fixed amount while reinvesting dividends and capital gains.

Accumulation Area

A price range within which a buyer accumulates shares of a stock. See: On-balance volume and distribution area.

ACES

See: Advance Computerized Execution System

ACH

See: Automated Clearing House

Acid Test Ratio

Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid items to current liabilities.

Acid-test Ratio (or Quick Ratio)

A measure of a firm's ability to meet current liabilities; more restrictive than the current ratio, it is computed by dividing net quick assets (all current assets, except inventories and prepaid expenses) by current liabilities.

Acquired Surplus

The surplus acquired when a company is purchased in a pooling of interests combination, i.e. the net worth not considered to be capital stock.

Acquiree

A firm that is being acquired.

Acquirer

A firm or individual that is acquiring something.

Acquisition

When a firm buys another firm.

Acquisition Cost

Refers to the price (including the closing costs) to purchase another company or property. In the context of investments, refers to price plus brokerage commissions, of a security, or the sales charge applied to load funds. See: Tax basis.

Acquisition Of Assets

A merger or consolidation in which an acquirer purchases the selling firm's assets.

Acquisition Of Stock

A merger or consolidation in which an acquirer purchases the acquiree's stock.

A test for ensuring that bond issuers can meet the debt service requirements of issuing any new additional bonds.

Additional Hedge

A protection against borrower fallout risk in the mortgage pipeline.

Adequacy Of Coverage

A test that measures the extent to which the value of an asset is protected from potential loss either through insurance or hedging.

Adjustable Rate

Applies mainly to convertible securities. Refers to interest rate or dividend that is adjusted periodically, usually according to a standard market rate outside the control of the bank or savings institution, such as that prevailing on Treasury bonds or notes. Typically, such issues have a set floor or ceiling, called caps and collars that limits the adjustment.

Adjustable-rate Mortgage

A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or margin, over the index, usually subject to per-interval and to life-of-loan interest rate and/or payment rate caps.

Adjustable-rate Preferred Stock

Publicly traded issues that may be collateralized by mortgages and MBS

Adjusted Balance Method

Method of calculating finance charges that uses the account balance remaining after adjusting for all transactions posted during the given billing period as its basis. Related: Average daily balance method, previous balance method, past due balance method.

Price from which to calculate and derive capital gains or losses upon sale of an asset. Account actions such as any stock splits that have occurred since the initial purchase must be accounted for.

Adjusted Debit Balance

The account balance for a margin account that is calculated by combining the balance owed to a broker with any outstanding balance in the special miscellaneous account, and any paper profits on short accounts.

Adjusted Exercise Price

Term used in options on Ginnie Mae (Government National Mortgage Association) contracts. The final exercise price of the option accounts for the coupon rates carried on Ginnie Mae mortgages. For example, if the standard GNMA mortgage has an 9% yield, the price of GNMA pools with 13% mortgages in them is altered so that the investor receives the same yield.

Adjusted Gross Income

An individual taxpayer's total income minus deductions (adjustments) for individual retirement plan contributions and alimony paid.

Adjusted Present Value

The net present value analysis of an asset if financed solely by equity (present value of unlevered cash flows), plus the present value of any financing decisions (levered cash flows). In other words, the various tax shields provided by the deductibility of interest and the benefits of other investment tax credits are calculated separately. This analysis is often used for highly leveraged transactions such as a leveraged buyout.

Adjusting Entries

Entries required at the end of each accounting period to recognize, on an accrual basis, revenues and expenses for the period and to report proper amounts for asset, liability, and owners' equity accounts.

Adjustment Bond

A bond issued in exchange for outstanding bonds when a corporation facing bankruptcy is recapitalized.

Adjustments To Gross Income

Amounts deducted from the gross income of an individual taxpayer in arriving at adjusted gross income; includes contributions to individual retirement plans and alimony paid.

Administrative Pricing Rules

IRS rules used to allocate income on export sales to a foreign sales corporation.

ADR

See: American Depository Receipt

ADS

See: American Depository Share

Advance

Increase in the market price of stocks, bonds, commodities, or other assets.

Advance Commitment

A promise to sell an asset before the seller has lined up purchase of the asset. This seller can offset risk by purchasing a futures contract to fix the sales price approximately.

Advance Computerized Execution System

Refers to the Advance Computerized Execution System, run by Nasdaq. ACES automates trades between order entry and market maker firms that have established trading relationships with each other. Securities are designated as specified for automatic execution.

Advance Funded Pension Plan

A pension plan in which funds are set aside in advance of the date of retirement.

Advance Refunding

In the context of municipal bonds, refers to the sale of new bonds (the refunding issue) before the first call date of old bonds (the issue to be refunded). The refunding issue usually specifies a rate lower than the issue to be refunded, and the proceeds are invested, usually in government securities, until the higher-rate bonds become callable. See: Refunding escrow deposits.

Adverse Opinion

Audit report indicating the auditor believes the overall financial statements are so materially misstated or misleading that the statements do not fairly represent the financial position or results of the operations and cash flows.

Adverse Selection

Refers to a situation in which sellers have relevant information that buyers lack (or vice versa) about some aspect of product quality.

Relationship between two companies when one company owns substantial interest, but less than a majority of the voting stock of another company, or when two companies are both subsidiaries of a third company. See: Subsidiaries, parent company.

Affiliated Corporation

A corporation that is an affiliate to the parent company.

Affiliated Person

An individual who possesses enough influence and control in a corporation as to be able to alter the actions of the corporation.

Affirmative Covenant

A bond covenant that specifies certain actions the firm must take.

Affordability Index

An index that measures the financial ability of consumers to purchase a home.

AFM

See: Amman Financial Market

After Acquired Clause

A contractual clause in a mortgage agreement stating that any additional mortgageable property attained by the borrower after the mortgage is signed will be regarded as additional security for the obligation addressed in the mortgage.

The comparison basis used to analyze the net after-tax returns on a corporate taxable bond and a municipal tax-free bond.

After-tax Profit Margin

The ratio of net income to net sales.

After-tax Real Rate Of Return

The after-tax rate of return minus the inflation rate.

Aftermarket

See: Secondary market.

Against The Box

See: Selling short against the box.

Aged Fail

An account between two broker/dealers that remains intact after 30 days after the settlement date. The receiving firm must adjust its capital as it can no longer treat this account as an assets.

Agencies

See: Federal agency securities.

Agency

In context of general equities, buying or selling for the account and risk of a customer. Generally, an agent, or broker, acts as intermediary between buyer and seller, taking no financial risk personally or as a firm, and charging a commission for the service. The broker represents a customer buyer/seller to a customer seller/buyer and does not act as principal for the firm's own trading account. Antithesis of principal. See: Dealer.

Agency Bank

A form of organization commonly used by foreign banks to enter the U.S. market. An agency bank cannot accept deposits or extend loans in its own name; it acts as agent for the parent bank. It is also the financial institution that issues ADRs to the general market.

Agency Basis

A means of compensating the broker of a program trade solely on the basis of commission established through bids submitted by various brokerage firms.

Agency Cost View

The argument that specifies that the various agency costs create a complex environment in which total agency costs are at a minimum with some, but less than 100%, debt financing.

Agency Costs

The incremental costs of having an agent make decisions for a principal.

A means of compensating the broker of a program trade using benchmark prices for issues to be traded in determining commissions or fees.

Agency Pass-throughs

Mortgage pass-through securities whose principal and interest payments are guaranteed by government agencies, such as the Government National Mortgage Association (Ginnie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), and Federal National Mortgage Association(Fannie Mae).

Agency Problem

Conflicts of interest among stockholders, bondholders, and managers.

Agency Securities

Securities issued by federally related institutions and U.S. government-sponsored entities. Such agencies were created to reduce borrowing costs for certain sectors of the economy, such as agriculture.

Agency Theory

The analysis of principal-agent relationships, in which one person, an agent, acts on behalf of another person, a principal.

Agent

The decision-maker in a principal-agent relationship.

Aggregate Exercise Price

The exercise price multiplied by the number of shares in a put or call contract. The option premium is excluded in the aggregate exercise price. In tje case of options traded on debt instruments, the aggregate exercise price is the exercise price of the underlying security multiplied by its face value.

Aggregation

Process in corporate financial planning whereby the smaller investment proposals of each of the firm's operational units are aggregated and effectively treated as a whole.

Aggressive Growth Mutual Fund

A mutual fund designed for maximum capital appreciation that places its money in companies with high growth rates.

Aggressively

Used in context of general equities. For a customer it means working to buy or sell one's stock, with an emphasis on execution over price. For a trader it means acting in a way that puts the firm's capital at higher risk through paying a higher price, selling cheaper, or making a larger short sale or purchase than the trader would under normal circumstances.

Aging Accounts Receivable

The process of categorizing each account receivable by the number of days it has been outstanding.

Aging Schedule

A table of accounts receivable broken down into age categories (such as 0-30 days, 30-60 days, and 60-90 days), which is used to determine if customer payments are keeping close to schedule.

Agreement Among Underwriters

A contract amoung participating members of a syndicate that defines the members' proportionate liability, which is usually limited to and based on the participants' level of involvement. The contract outlines the payment schedule on the settlement date. Compare: Underwriting agreement.

Ahead Of Itself

In context of general equities, refers to equities that are overbought or oversold on a fundamental basis.

Ahead Of You

Used for listed equity securities. At the same price but entered ahead of your order/interest, usually referring to the specialist's book. See: Behind, matched orders, priority, stock ahead.

AIBD

Association of International Bond Dealers

AIMR Performance Presentation Standards Implementa

The Association for Investment Management and Research (AIMR) Performance Presentation Standards Implementation Committee is charged with the responsibility to interpret, revise, and update the AIMR Performance Presentation Standards (AIMR-PPS(TM) for portfolio performance presentations.

Air Pocket Stock

A stock whose price drops precipitously, often on the unexpected news of poor results.

Alien Corporation

A company incorporated under the laws of a foreign country regardless of where the company conducts its operations.

All Equity Rate

The discount rate that reflects only the business risks of a project, distinct from the effects of financing.

Refers to an issuer's interest rate after accounting for commissions and various related expenses.

All Or None Order

Used in context of general equities. A limited price order that is to be executed in its entirety or not at all (no partial transaction), and thus is testing the strength/conviction of the counterparty. Unlike an FOK order, an AON order is not to be treated as cancelled if not executed as soon as it is represented in the trading crowd, but instead remains alive until executed or cancelled. The making of "all or none" bids or offers in stocks is prohibited, and the making of "all or none" bids or offers in bonds is subject to the restrictions of Rule 61. AON orders are not shown on the specialist's book because they cannot be traded in pieces. Antithesis of any-part-of order. See: FOK order.

All Ordinaries Index

The major index of Australian stocks comprising 330 of the major companies listed on the Australian Stock Exchange.

All-in Cost

Total costs, explicit and implicit.

All-or-none Underwriting

An arrangement whereby a security issue is cancelled if the underwriter is unable to resell the entire issue.

Allied Member

A partner or stockholder of a firm that is a member of the NYSE, the partner or stockholder is not personally a member of the NYSE.

Alligator Spread

The term used to describe a spread in the options market that generates such a large commission that the client is unlikely to make a profit even if the markets move as the investor anticipated.

Allotment

The number of securities assigned to each of the participants in an underwriting syndicate.

Allowance For Noncollectible Accounts

A contra account, deducted from Accounts Receivable, that shows the estimated losses from uncollectible accounts.

Allowance Method

The recording of estimated losses due to uncollectible accounts as expenses during the period in which the sales occurred.

Alpha

Measure of risk-adjusted performance. An alpha is usually generated by regressing the security or mutual fund's excess return on the S&P 500 excess return. The beta adjusts for the risk (the slope coefficient). The alpha is the intercept. Example: Suppose the mutual fund has a return of 25%, and the short-term interest rate is 5% (excess return is 20%). During the same time the market excess return is 9%. Suppose the beta of the mutual fund is 2.0 (twice as risky as the S&P 500). The expected excess return given the risk is 2 x 9%=18%. The actual excess return is 20%. Hence, the alpha is 2% or 200 basis points. Alpha is also known as the Jensen Index. Related: Risk-adjusted return.

Alpha Equation

Regression usually run over 36-60 months of data: Return-Treasury bill= alpha + beta (S&P 500 - Treasury bill) + error. The alpha is the intercept. Note that the benchmark does not necessarily have to be the S&P 500. A mutual fund specializing in international investment might be benchmarked to a broader world market index, such as the MSCI World Index.

Alphabet Stock

Categories of common stock of a corporation associated with a particular subsidiary resulting from acquisitions and restructuring. The various alphabetical categories have different voting rights and pay dividends tied to the operating performance of the particular divisions. See also: Tracking stocks.

Alternative Minimum Tax

A federal tax aimed at ensuring that wealthy individuals, estates, trusts, and corporations pay a minimal level income tax. For individuals, the AMT is calculated by adding adjusted gross income to tax preference items.

Alternative Mortgage Instruments

Variations of mortgage instruments such as adjustable-rate and variable-rate mortgages, graduated-payment mortgages, reverse-annuity mortgages, and several seldom-used variations.

Alternative Order

Used in context of general equities. Order giving a broker a choice between two courses of action, either to buy or sell, never both. Execution of one course automatically eliminates the other. An example is a combination buy limit/buy stop order, where the buy limit is below the current market and the buy stop is above. If the order is for one unit of trading, when one part of the order is executed on the occurrence of one alternative, the order on the other alternative is to be treated as cancelled. If the order is for an amount of more than one unit of trading, the number of units executed determines the amount of the alternative order to be treated as cancelled. See: Either-or order.

American Association Of Individual Investors (AAII

A not-for-profit organization to educate individual investors about stocks, bonds, mutual funds, and other financial instruments.

American Depository Receipt

Certificates issued by a U.S. depository bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR's are "sponsored," the corporation provides financial information and other assistance to the bank and may subsidize the administration of the ADR "Unsponsored" ADRs do not receive such assistance. ADRs are subject to the same currency, political, and economic risks as the underlying foreign share. Arbitrage keeps the prices of ADRs and underlying foreign shares, adjusted for the SDR/ordinary ratio essentially equal. American depository shares (ADS) are a similar form of certification.

American Depository Receipt Fees

Fees associated with the creating or releasing of ADRs from ordinary shares, charged by the commercial banks with correspondent banks in the international sites.

An option that may be exercised at any time up to and including the expiration date. Related: European option

American Shares

Securities certificates issued in the U.S. by a transfer agent acting on behalf of the foreign issuer. The certificates represent claims to foreign equities.

American Stock Exchange

Stock exchange with the third highest volume of trading in the U.S. Located at 86 Trinity Place in downtown Manhattan. The bulk of trading on AMEX consists of index options (computer technology index, institutional index, major market index) and shares of small to medium-sized companies are predominant. Recently merged with Nasdaq See: Curb.

American-style Option

An option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style.

AMEX

See: American Stock Exchange

Amman Financial Market

Established in 1976, the AFM is the only stock exchange in Jordan.

Amortization

The process of cost allocation that assigns the original cost of an intangible asset to the periods benefited.

Amortization Factor

The pool factor implied by the scheduled amortization assuming no prepayments.

Amortizing Interest Rate Swap

Swap in which the principal or notional amount rises (falls) as interest rates rise (decline).

AMPS

See: Auction Market Preferred Stock

Amsterdam Exchange

Exchange that comprises the AEX-Effectenbeurs, the AEX-Optiebeurs (formerly the European Options Exchange or EOE) and the AEX-Agrarische Termijnmarkt. AEX-Data Services is the operating company responsible for the dissemination of data from the Amsterdam Exchange via its integrated Mercury 2000 system.

AMTEL

Used in context of general equities. In-house message system entered and displayed through Quotron A page.

Analyst

Employee of a brokerage or fund management house who studies companies and makes buy-and-sell recommendations on stocks of these companies. Most specialize in a specific industry.

And Interest

An indication that the buyer will receive accrued interest in addition to the price quoted for a bond.

Angel

An investment-grade bond. Antithesis to fallen angel. In the context of venture capital, the first investor.

Angels

Individuals providing venture capital.

Ankle Biter

Stock issued with a market capitalization of less than $500 million.

Announcement Date

Date on which particular news concerning a given company is announced to the public. Used in event studies, which researchers use to evaluate the economic impact of events of interest.

Annual Basis

The technique in statistics of taking a figure covering a period of less than one year and extrapolating it to cover a full one year period. The process is known as annualizing.

For investment companies, the management fee and "other expenses," including the expenses for maintaining shareholder records, providing shareholders with financial statements, and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are also included.

Annual Meeting

Meeting of stockholder held once a year at which the managers of a company report to the stockholders on the year's results.

Annual Percentage Rate

The cost of credit on a yearly basis, expressed as a percentage rather than a dollar amount.

Annual Percentage Yield

The effective, or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding. The APY is calculated by taking one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate has an APY of 12.68% (1.01^12 -1).

Annual Rate Of Return

There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the annual percentage rate (APR). The annual percentage yield (APY), includes the effect of compounding interest.

Annual Renewable Term Insurance

See: Term insurance.

Annual Report

A document that summarizes the results of operations and financial status of a company for the past year and outlines plans for the future.

Annualized Gain

If stock X appreciates 1.5% in one month, the annualized gain for that stock over a twelve month period is 121.5% = 18%. Compounded over the 12 month period, the gain is (1.015)^12 -1 = 19.6%.

Annualized Holding-period Return

The annual rate of return that when compounded t times generates the same t-period holding return as actually occurred from period 1 to period t.

Annualizing

See: Annual basis.

Annuitant

An individual who receives benefits from an annuity.

Annuitize

To commence a series of payments from the capital that has accumulated in an annuity. The payments may be a fixed amount, for a fixed period of time, or for a lifetime.

Annuity

A series of equal amounts to be received or paid at the end of equal time intervals.

Annuity Certain

An annuity that pays a specific amount on a monthly basis for a set amount of time.

Annuity Due

An annuity with n payments, where the first payment is made at time t = 0, and the last payment is made at time t = n - 1.

Annuity Factor

Present value of $1 paid for each of t periods.

Annuity In Arrears

An annuity with a first payment one full period hence, rather than immediately.

The simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly efficient markets seldom exist, but, arbitrage opportunities are often precluded because of transactions costs.

Municipality issued bonds issued intended to gain an interest rate advantage by refunding a higher-rate bond in ahead of their call date. Lower-rate refunding issue proceeds are invested in Treasuries until the first call date of the higher-rate issue.

Arbitrage Pricing Theory

An alternative model to the capital asset pricing model developed by Stephen Ross and based purely on arbitrage arguments. The APT implies that there are multiple risk factors that need to be taken into account when calculating risk-adjusted performance or alpha.

Arbitrage Trading Program

See: Program trading.

Arbitrage-free Option-pricing Models

Yield curve option-pricing models.

Arbitrageur

One who profits from the differences in price when the same, or extremely similar, security, currency, or commodity is traded on two or more markets. The Arbitrageur profits by simultaneously purchasing and selling these securities to take advantage of pricing differentials (spreads) created by market conditions. See: Risk arbitrage, convertible arbitrage, index arbitrage, and international arbitrage.

Are You Open?

Used in context of general equities. "Can a new customer still participate on opposing side of the trade from that which the first customer initiated?", Inquiring as to whether any portion of that trade is still available See: Open.

Arithmetic Average (mean) Rate Of Return

Arithmetic mean return.

Arithmetic Mean Return

An average of the subperiod returns, calculated by summing the subperiod returns and dividing by the number of subperiods.

ARM

See: Adjustable-rate mortgage

Arm's Length Price

The price at which a willing buyer and a willing unrelated seller would freely agree to transact.

Arms Index

Also known as a trading index (TRIN) (total up volume)/(total down volume). An advance/decline market indicator. Less than 1.0 indicates bearish demand, while above 1.0 is bullish. The index often is smoothed with a simple moving average.

Around Us

Used in context of general equities. See: Away from you.

ARPS

See: Adjustable-rate preferred stock

ARR

See: Average rate of return

Arrearage

In the context of investments, refers to the amount by which interest on bonds or dividends on cumulative preferred stock is due and unpaid.

Articles Of Incorporation

Legal document establishing a corporation and its structure and purpose.

Articulation

The interrelationships among the financial statements.

Artificial Currency

A currency substitute, e.g., special drawing rights (SDRs).

Ascending Tops

A chart pattern that depicts that each peak in a security's price over a period of time is higher than the preceding peak. Antithesis of descending tops.

Option based on the average price of the underlying assets during the life of the option.

Ask

This is the quoted ask, or the lowest price an investor will accept to sell a stock. Practically speaking, this is the quoted offer at which an investor can buy shares of stock; also called the offer price.

Asked Price

In context of general equities, price at which a security or commodity is offered for sale on an exchange or in the OTC Market.

Asked To Bid/offer

Used in context of general equities. Usually a seller (buyer) looking to aggressively sell (buy) stock, usually asking for a capital commitment from an investment bank.

Aspirin

Australian Stock Price Riskless Indexed Notes. Zero-coupon four-year bonds repayable at face value plus the percentage increase by which the Australian stock index of all ordinaries (common stocks) rises above a predefined level during the given period.

Assay

Metal purity test to confirm that the metal meets the standards for trading on a commodities exchange (commodities exchange center).

Assessed Valuation

The value assigned to property by a municipality for the purpose of tax assessment. Such an assessed valuation is important to investors in municipal bonds that are backed by property taxes.

ASSET

Is anything owned by an individual or a business, which has commercial or exchange value. Assets may consist of specific property or claims against others, in contrast to obligations due others

Asset Activity Ratios

Ratios that measure how effectively the firm is managing its assets.

Asset Allocation Decision

The decision regarding how an institution's funds should be distributed among the major classes of assets in which it may invest.

Asset Allocation Mutual Fund

A mutual fund that rotates amoung stocks, bonds, and money market securities to maximize return on investment and minimize risk.

Asset Classes

Categories of assets, such as stocks, bonds, real estate, and foreign securities.

Asset Depreciation Range System

A range of depreciable lives the IRS allows for particular classes of assets.

Asset For Asset Swap

Creditors exchange the debt of one defaulting borrower for the debt of another defaulting borrower.

Asset Management Account

Account at a brokerage house, bank, or savings institution that integrates banking services and brokerage features.

Asset Play

A company with assets that are not believed to be accurately reflected in its stock price, making it an attractive buy or play.

Asset Pricing Model

A model for determining the required or expected rate of return on an asset. Related: Capital asset pricing model and arbitrage pricing theory.

Asset Stripper

A corporate raider (company A) that takes over a target company (company B) in order to sell large assets of company B to repay debt. Company A calculates that the net selling of the assets and paying off the debt, will leave the raider with assets that are worth more than what it paid for company B.

Asset Substitution

Occurs when a firm invests in assets that are riskier than those that the debtholders expected.

Arises when the stockholders substitute riskier assets for the firm's existing assets and expropriate value from the debtholders.

Asset Swap

An interest rate swap used to alter the cash flow characteristics of an institution's assets in order to provide a better match with its liabilities.

Asset Turnover

The ratio of net sales to total assets.

Asset Turnover Ratio

An overall measure of how effectively assets are used during a period; computed by dividing net sales by average total assets.

Asset Value

The net market value of a corporation's assets on a per-share basis, not the market value of the shares. A company is undervalued in the market when asset value exceeds market value.

Asset-backed Security

A security that is collateralized by loans, leases, receivables, or installment contracts on personal property, not real estate.

Asset-based Financing

Methods of financing in which lenders and equity investors look principally to the cash flow from a particular asset or set of assets for a return on, and the return of, their financing.

Asset-coverage Test

A bond indenture restriction that permits additional borrowing if the ratio of assets to debt does not fall below a specified minimum.

Asset/equity Ratio

The ratio of total assets to stockholder equity.

Asset/liability Management

The task of managing the funds of a financial institution to accomplish the two goals of a financial institution: (1) to earn an adequate return on funds invested and (2) to maintain a comfortable surplus of assets beyond liabilities. Also called surplus management.

Assets

Economic resources that are owned or controlled by an entity.

Assets Requirements

A common element of a financial plan that describes projected capital spending and the proposed uses of net working capital.

Assignment

The receipt of an exercise notice by an options writer that requires the writer to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.

Assimilation

The public absorption of a new issue of stocks once the stock has been completely sold by underwriter. See: Absorbed.

Assumed Interest Rate

Rate of interest used by an insurance company to calculate the payout on an annuity contract.

Assumption

Becoming responsible for the liabilities of another party.

ASX

See: Australian Stock Exchange

ASX Derivatives And Options Market

Options market trading options on more than 50 of Australia's and New Zealand's leading companies.

Phenomenon that volatility is higher in down markets than in up markets.

Asymmetry

A lack of equivalence between two things, such as the unequal tax treatment of interest expense and dividend payments.

At Par

A price equal to nominal or face value of a security. See: Par.

At Risk

The exposure to the danger of economic loss. Frequently used in the context of claiming tax deductions. For example, a person can claim a tax deduction in a limited partnership if the taxpayer can show it is at risk of never realizing a profit and of losing its initial investment. See: Value at risk.

At The Bell

In context of general equities, at the opening or close of the market. See: MOC Order.

At The Close Order

In the context of securities, an all or none market order that is to be executed at the closing price of the security on the exchange. If the execution cannot be made under this condition, the order is to be treated as cancelled. In the context of futures and options, refers to a contract that is to be executed on some exchanges during the closing period, a period in which there is a range of prices.

At The Figure

In context of general equities, at the whole integer price (excluding the fraction) closest to the side of the market (bid/ask) being discussed. At the full.

At The Full

Used in context of general equities. At the figure.

At The Market

See: Market order.

At The Opening Order

In context of general equities, market order or limited price order that is to be executed at the opening (and corresponding price) of the stock or not at all, and any such order or portion thereof not so executed is to be treated as cancelled.

At-the-money

An option is at the money if the strike price of the option is equal to the market price of the underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at the money.

Athens Stock Exchange

Greece's principal stock exchange.

ATP

See: Arbitrage Trading Program

Attribute Bias

The tendency of stocks preferred by the dividend discount model to share certain equity attributes such as low price-earnings ratios, high dividend yield, high book value ratio, or membership in a particular industry sector.

Auction Market Preferred Stock

A type of Dutch Auction Preferred Stock (A Merrill Lynch product).

Auction Markets

Markets in which the prevailing price is determined through the free interaction of prospective buyers and sellers, as on the floor of the stock exchange.

The result of an independent accountant's review of the statements and footnotes to ensure compliance with generally accepted accounting principles and to render an opinion on the fairness of the financial statements.

Audit Committee

Members of a client's board of directors who are responsible for dealing with the external and internal auditors.

Audit Report

A report issued by an independent CPA that expresses an opinion about whether the financial statements present fairly a company's financial position, operating results, and cash flows in accordance with generally accepted accounting principles.

Resolves the validity of an accounting entry by a step-by-step record by which accounting data can be traced to their source.

Auditor's Certificate

See: Accountant's opinion.

Auditor's Report

A section of an annual report that includes the auditor's opinion about the veracity of the financial statements.

Aunt Millie

An unsophisticated investor.

Australian Stock Exchange

Established in 1987 following the amalgamation of the six independent stock exchanges operating in the Australian state capitals. The ASX is the tenth-largest stock exchange in the world on the basis of domestic capitalization.

Autex

Video communication network through which brokerage houses alert institutional investors of their desire to transact block business (a purchase or sale) in a given security. Indications transmit small, medium, and large sizes only, with occasional limits mentioned. Supers are messages with specific size and price included. Both "indications" and "supers" can be only seen by customers (institutional subscribers to Autex). Trade recaps, advertised block trades entered by the dealer/subscribers, are also displayed, but can be seen by both institutions and dealers. See: Expunge, size.

Authentication

In the context of bonds, refers to the validation of a bond certificate.

Authority Bond

A bond issued by a government agency or a corporation created to manage a revenue-producing public enterprise. The difference between an authority bond and a municipal bond is that margin protections may be incorporated in the authority bond contract as well as in the legislation that enables the authority.

Authorized Shares

Number of shares authorized for issuance by a firm's corporate charter.

Authorized Stock

The amount and type of stock that may be issued by a company, as specified in its articles of incorporation.

Autocorrelation

The correlation of a variable with itself over successive time intervals. Sometimes called serial correlation.

Automated Bond System

The computerized system that records bids and offers for inactively traded bonds until they are cancelled or executed on the NYSE.

Automated Clearing House

A collection of 32 regional electronic interbank networks used to process transactions electronically with a guaranteed one-day bank collection float.

Automated Customer Account Transfer

For transfers of securities from a non-equity trading account to your equity trading account with your broker.

Automated Order System

Investment banks, computerized order entry system that sends single order entries to DOT (Odd-Lot) or to investment banks, floor brokers on the exchange. See: Round lot, GTC orders.

Automated Pit Trading

Introduced in 1989, APT is the LIFFE screen-based trading system that replicates the open outcry method of trading on screen. A.P.T. is used to extend the trading day for the major futures contracts as well as to provide a daytime trading environment for non-floor trading products.

Automatic Extension

An automatic extension of time granted to a taxpayer to file a tax return.

Automatic Funds Transfer

A transfer of funds from one account or investment vehicle to another using electronic or telecommunications technology.

Automatic Investment Program

A program in which an investor can invest or withdraw funds automatically. A mutual fund, for example, automatically withdraw a pre determined specified amount from the investor's bank account on a regular basis.

The restricting of liabilityholders from collection efforts related to collateral seizure. Automatically imposed when a firm files for bankruptcy under Chapter 11.

Automatic Withdrawal

A mutual fund that gives shareholders the right to receive a fixed payment from dividends on a quarterly or monthly basis.

Autoquote

Autoquote indicative prices are generated for many of the financial options contracts traded at LIFFE using standard mathematical models as derived by Black and Scholes and Cox, Ross, Rubinstein. Autoquote calculates prices for all series by processing variables captured in real-time from other systems and trading members each time the underlying price changes. Autoquotes indicate where a series may trade, given the current level of the underlying instrument.

Autoregressive

Using past data or variable of interest to predict future values of the same variable.

Availability Float

Checks deposited by a company that have not yet been cleared.

Available On The Way In

In context of general equities, stock is available to new customer as trade initiated by another customer is about to be consummated (on the exchange floor). Usually said to an inquiring salesperson. See: Open.

Available-for-sale Securities

Debt and equity securities not classified as trading, held-to-maturity, or equity method securities.

Average

An arithmetic mean return of selected stocks intended to represent the behavior of the market or some component of it. One good example is the widely quoted Dow Jones Industrial Average, which adds the current prices of the 30 DJIA stocks, and divides the results by a predetermined number, the divisor.

Average (across-day) Measures

An estimation of price that uses the average or representative price of a large number of trades.

Average Accounting Return

The average project earnings after taxes and depreciation divided by the average book value of the investment during its life.

Average Age Of Accounts Receivable

The weighted-average age of all the firm's outstanding invoices.

Average Annual Return

The rate of return on investments averaged over a specific period of time(e.g., the last 20 years). It is determined by adding together the rates ofreturn for each year and dividing by the number of years in the calculation.

Average Collection Period, Or Days' Receivables

The ratio of accounts receivables to sales, or the total amount of credit extended per dollar of daily sales (average AR/sales 365).

Average Cost

In the context of investing, refers to the average cost of shares or stock bought at different prices over time.

Average Cost Of Capital

A firm's required payout to bondholders and stockholders expressed as a percentage of capital contributed to the firm. Average cost of capital is computed by dividing the total required cost of capital by the total amount of contributed capital.

Average Daily Balance

A method for calculating interest in which the balance owed each day by a customer is divided by the number of days. See also: Adjusted balance method and previous balance method.

Average Down

A strategy used by investors to reduce the average cost of shares, in which the investor purchases more shares with a fixed amount of capital as the price of the shares decrease. The investor receives more shares per dollar and decreases the average price per share.

Average Equity

A customer's average daily balance in a trading account at a brokerage firm.

Average Life

Also referred to as the weighted-average life (WAL). The average number of years that each dollar of unpaid principal due on the mortgage remains outstanding. Average life is computed as the weighted-average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal paydowns.

Average Maturity

The average time to maturity of securities held by a mutual fund. Changes in interest rates have greater impact on funds with longer average maturity.

Taxes as a fraction of income; total taxes divided by total taxable income.

Average Up

A strategy used by investors to lower the overall cost of shares by buying as many shares with a given amount of capital in an increasing market. Buying $1000 worth of shares at $30, $35, $40, and $45, for instance, will make the average cost of the shares $37.50.

Averaging

See: Constant dollar plan.

Away

A trade, quote, or market that does not originate with the dealer in question, e.g., "the bid is 98-10 away from me."

Away From The Market

In context of general equities, out of line with the inside market at this time, such as when a bid on a limit order is lower or the offer price is higher than the current market price for the security; held by the specialist for later execution unless FOK. Antithesis of in-line.

Away From Us

Used in context of general equities, to characterize role of a competing broker/dealer. Trading away from us signifies that stock is bought and/or sold with institutions using other trading firms.

Away From You

Used for listed equity securities. See: Outside of you.

Axe To Grind

Used in context of general equities. Involvement in a security, whether through a position, order, or inquiry.